Logo of Phnom Penh Post newspaper Phnom Penh Post - Local MFIs roll with the changes

Local MFIs roll with the changes

Content image - Phnom Penh Post
Kea Borann, the chairman of the Cambodia Microfinance Association talks about the state of the microfinance industry at his office last week. Heng Chivoan

Local MFIs roll with the changes

The Cambodian microfinance sector has seen major changes over the past two years.

After being required to declare themselves as private institutions to differentiate from state-owned enterprises, the firms were subject to an 18 percent cap on annual interest rates, effective from April 1 last year. Recently, there has been an increase in illegal lenders offering risky loans to the public.

The Post’s Hor Kimsay talked to Kea Borann, chairman of the Cambodia Microfinance Association (CMA) about the recent changes in the sector.

Since the interest rate cap was implemented in April last year, have you seen any changes among microfinance institutions (MFIs)?

Yes, there have been changes. We found that last year, the number of clients in the MFI industry as a whole declined by nearly 200,000. This is the first time that this has occurred in the sector’s history. This happened after the central bank applied the interest rate cap.

So, where did the clients go? If those clients still take loans and go to private money lenders because they are unable to get one from an official institution, it is worrying. If so, the interest rate cap did not help but brought about a negative impact.

On behalf of CMA, however, we cannot assume anything yet. I cannot say this occurred because of the interest rate cap. There could be other factors. We can only prove this if we conduct a study.

How has net profit changed in the MFI industry after the interest rate cap?

Almost all microfinance operators have seen a decrease in profits and return on equity [ROE]. For instance, AMK Microfinance has seen ROE decline from 20 percent to 13.8 percent.

There is an increasing trend where MFIs sell a majority stake to commercial banks abroad. What are the factors behind that and how will it impact the industry?

I think it is normal. During the 1990s, all lending institutions were set up by NGO funds and operated as NGOs. In the late 2000s, there was commercialisation in the sector as institutions shifted to become private enterprises.

This time, I think it is a new turning point. Many foreign banks are entering and acquiring major MFIs. This could show that, despite Cambodian MFIs struggling with the interest rate cap, foreign investors are still confident in the potential of the sector.

They might have strong capital and a source of funds with low interest, so there is hope that the shift will have a positive impact on the industry.

As the country is preparing for the national elections this month, how will it impact the growth and stability of the microfinance sector?

We have not seen any noticeable change in the industry as the country is preparing for national elections. Deposits are still increasing, while bad loans are stable. The industry is still growing strongly. Cambodians are still using the financial sector as normal.

What are your thoughts on the rising number of unlicensed loan services and how big a threat are they to the financial industry?

It is a very worrying trend because they are not regulated as CMA members are. Illegal institutions don’t offer a transparent service. They don’t follow a code of ethics or conduct themselves professionally.

They don’t even have client protection principals as licensed institutions do. This will cause people to fall seriously in debt from such “predators”.

What advice would you give the public on how to avoid illegal lenders?

Illegal lenders have not penetrated rural areas yet. Their activity is in the city as they use Facebook, SMS messages, and banners to promote their services.

People in urban areas should have access to enough information channels to be able to verify their lender. And clients need to ask for information when they take loans.

They must carefully read and understand the loan contracts. Cambodians should only take out loans from licensed institutions listed with the NBC and CMA, for their own protection.

This interview has been edited for length and clarity.

MOST VIEWED

  • Hong Kong firm done buying Coke Cambodia

    Swire Coca-Cola Ltd, a wholly-owned subsidiary of Hong Kong-listed Swire Pacific Ltd, on November 25 announced that it had completed the acquisition of The Coca-Cola Co’s bottling business in Cambodia, as part of its ambitions to expand into the Southeast Asian market. Swire Coca-Cola affirmed

  • Cambodia's Bokator now officially in World Heritage List

    UNESCO has officially inscribed Cambodia’s “Kun Lbokator”, commonly known as Bokator, on the World Heritage List, according to Minister of Culture and Fine Arts Phoeurng Sackona in her brief report to Prime Minister Hun Sen on the night of November 29. Her report, which was

  • NagaWorld union leader arrested at airport after Australia trip

    Chhim Sithar, head of the Labour Rights Supported Union of Khmer Employees at NagaWorld integrated casino resort, was arrested on November 26 at Phnom Penh International Airport and placed in pre-trial detention after returning from a 12-day trip to Australia. Phnom Penh Municipal Court Investigating Judge

  • Sub-Decree approves $30M for mine clearance

    The Cambodian government established the ‘Mine-Free Cambodia 2025 Foundation’, and released an initial budget of $30 million. Based on the progress of the foundation in 2023, 2024 and 2025, more funds will be added from the national budget and other sources. In a sub-decree signed by Prime Minister Hun Sen

  • Two senior GDP officials defect to CPP

    Two senior officials of the Grassroots Democratic Party (GDP) have asked to join the Cambodian People’s Party (CPP), after apparently failing to forge a political alliance in the run-up to the 2023 general election. Yang Saing Koma, chairman of the GDP board, and Lek Sothear,

  • 11th Chaktomuk Short Film Festival draws to close

    Cambodia's 11th Chaktomuk Short Film Festival wrapped up successfully on November 28 after a four-day run, with the film “Voice of the Night” awarded top prize for 2022. Sum Sithen, the organiser of the short film festival, told The Post that the number of attendees to the